Insourcing the Outsourced

As the U.S. works to move the economy forward and the unemployment figures lower, much attention and resources have been directed at small businesses, which account for the majority of new jobs. But within the small business sector there are many different types of businesses and entrepreneurs who may require different approaches to help grow their companies. One of the sectors with some of the greatest potential for small business-related job creation and economic growth is among America’s immigrant population.

According to the Small Business Administration (SBA), immigrants are almost 30 percent more likely to start a new business than native citizens living in the U.S. Additionally, immigrants make up 12.5 percent of all U.S. business owners and accounted for approximately $67 billion of the $577 billion of all U.S. business income in the 2000 census.[1] Cities are taking notice, with community and economic development professionals and foundations looking at ways to better tap this market in efforts to attract “a new wave of urban entrepreneurs, investors and consumers,” counter local depopulation and stabilize the local housing market.[2]

Foreign-born individuals have a higher rate of entrepreneurship than U.S.-born individuals, especially in technology and engineering firms in the U.S. For example, between 1995 and 2005 a quarter of all technology and engineering firms were started with at least one foreign-born key founder; these tech companies employed nearly 450,000 workers in 2005.

A high level of entrepreneurship among America’s immigrant population is not a new phenomenon; in fact, every U.S. census since 1880 has shown that immigrants are more likely to own a business than native citizens.[3] This is not unique to the U.S.; it is also true in the U.K., Canada and Australia.[1]

High levels of entrepreneurship notwithstanding, most immigrants do not come to America for the sole purpose of starting a business. According to a 2007 report, only 1.6 percent of immigrants in the technology sector enter the U.S. with such a goal. Most come to this country for education (52.3 percent) or a job (39.8 percent).[3]

So if immigrants are not coming to America for the specific purpose of starting a business, what explains their higher levels of entrepreneurship? There is no single explanation for this phenomenon throughout the world, but it is almost certainly a combination of many factors, including the following[4]:

People willing to relocate to another country may be more likely to be risk takers.

Immigrants may face discrimination and other barriers in the workplace and may believe that starting their own business offers them the best chance for success.

Organizations may offer immigrants low wages with little or no advancement opportunities.

Without better options, immigrants may start businesses to supplement their incomes.

Immigrants may see a new business opportunity where the needs within their ethnic population are not being met.

The tradition of higher levels of entrepreneurs among immigrants may be a source of inspiration for other immigrants, propelling them to open their own business.

Effectively reaching out to current émigré populations and attracting new immigrants could help many American cities reverse population declines, recoup a lost tax base, and decrease commercial and residential vacancy rates. Currently, the areas that benefit the most from these entrepreneurs are states such as California, Florida, Hawaii, New York and Texas.[1] However, there is some evidence that more immigrant entrepreneurs are looking outside of states with traditionally high levels of immigrants to places where real estate and other services are cheaper.[4] The seven states that comprise the Eighth Federal Reserve District account for only 7.6 percent of total immigrant entrepreneurs in the U.S.; much more could be done to attract these proprietors to areas currently less represented by immigrant-owned businesses.[1]

To achieve this goal and reap the benefits of immigrant entrepreneurs joining their community, organizations and cities need to help these populations break down barriers that are specific to immigrant business owners and that may inhibit their ability to grow their company, including[4]:

language and cultural barriers,

lack of understanding of local regulations,

limited financial literacy and/or no credit history,

being disconnected from many of the local community and economic development organizations in communities, and

Many highly skilled immigrants face difficulties in their attempt to enter the U.S. to start a job or open a business. Current debate has centered around possible changes to the EB-5 program to encourage more immigrant entrepreneurs to invest in America, and to the H-1B program to help the United States capture more of the global talent of immigrants with specialized skills in demand in this country.

Referring to the H-1B program in 2008, Bill Gates noted that all 65,000 H-1B visas were granted in one day, leaving Microsoft unable to hire one-third of the foreign-born workers they needed. The ability to capitalize on importing a talented workforce from other countries of the world could help to create more jobs and businesses within the U.S. Gates said, “If we increase the number of H-1B visas that are available to U.S. companies, employment of U.S. nationals would likely grow as well. For instance, Microsoft has found that for every H-1B hire we make, we add on average four additional employees to support them in various capacities.”[5]

Cities, states and America as a whole benefit economically and culturally from immigrant entrepreneurs. The late Senator Edward Kennedy explained, “Immigrant families have integrated themselves into our communities, establishing deep roots. Whenever they have settled, they have made lasting contributions to the economic vitality and diversity of our communities and our nation. Our economy depends on these hard-working, taxpaying workers. They have assisted America in its economic boom.”[6]

The competition among countries for global talent will continue to be fierce. It is important that America continues to attract the best talent from around the world to fuel innovation and new enterprises, and to fill labor shortages. Not only are we revitalizing communities and creating new businesses and jobs, we are also creating the next generation of Americans.

Endnotes

Fairlie, Robert W. Estimating the Contribution of Immigrant Business Owners to the U.S. Economy. Small Business Association, Office of Advocacy, 2008. [back to text]